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Patent Monetization 2014: Value is Going Down

In the last five years, patent portfolios have greatly increased in value. Often sold for unprecedented sums – some for billions USD – they have captured the attention of the investment community as an under-valued corporate asset, and a potentially lucrative asset class. And the level of patent monetization, whether by assertion, licensing, securitization, sale, or transfer, continues to expand in the U.S. despite the growing concern of so-called “patent trolls.”

The impact of the America Invents Act (AIA), which passed in 2011 is just beginning to be felt on patent monetization and it is far from clear if this act will extend the rise in patent portfolio value. It may do exactly the opposite.

Among the changes instituted by the AIA are new procedures for challenging the patentability of U.S. patents at the United States Patent and Trademark Office (USPTO). These challenges can be brought together with a patent lawsuit or presented alone. For some proceedings, the challenger (called the petitioner) does not have to be threatened with a suit by the patent owner. In fact, some of the new proceedings have been brought by entities that are not in patent litigation with the patent owner. As a result, a patent portfolio could subject a patent owner to proceedings merely through ownership – a tactic that could be used by a rich competitor to force a fire sale of a weak competitor.

Congress created these new challenge procedures to provide an alternative to testing the validity of a patent in a court suit. It envisioned that the proceedings at the USPTO would be faster, cheaper, and provide better outcomes. The proceedings were also intended to conserve judicial resources by first testing patentability at the USPTO. The AIA allows the court’s discretion in staying parallel litigation pending completion of the USPTO proceeding. More than 80 percent of the instituted proceedings have parallel litigation in the courts and many courts are staying suits pending completion of the instituted proceeding at the USPTO.

With more than 1,000 filed so far, the new proceedings have been embraced in surprising numbers. More than 75 percent of the challenged patent claims have been instituted for trial, and almost 100 percent of the claims that have gone through trial to final written decision by the Patent Trial & Appeal Board (PTAB) have been found unpatentable! While it is uncertain whether the “kill rate” of patent claims by the PTAB will continue at this surprisingly high level, there is a deepening gloom over the patent owner community concerning the new proceedings.

Specialists in these new proceedings are popularizing the idea that an accused infringer would be ill served not to use them as a more cost-effective, faster, and better way to defeat patent liability than defending first in district court. One such specialist has championed the concept of a “patent zombie,” a patent owner who has been hit with one of the new proceedings and whose claims are effectively dead.

The plaintiff patent litigation bar is beginning to comprehend this new patent enforcement landscape. The more astute are factoring in one or more of the proceedings in overall enforcement strategy and assessing the probability of success of the challenge, the cost of defending against it, and the relatively short time frame in which the USPTO is required to complete it. The treatise Patent Office Litigation offers an in-depth treatment of the new patent landscape, and “Patent Legislation Before the U.S. Congress: Differing Perspectives,” a webinar series (Part 1, Part 2, and Part 3) on the West LegalEdcenter®, provides the views of many stakeholders.

Will the patent environment created by the AIA result in diminution of the value of patents? Time will tell. For now, investors in technology should consider these developments when assessing return on investment. And attorneys involved in patent monetization of all stripes must become knowledgeable of the new patent environment.

Robert Greene Sterne is the editor-in-chief of Patent Office Litigation, the first treatise on the new patent world created by the America Invents Act. This book examines how the proceedings interact with other aspects of patent procurement and enforcement, and delivers practical analysis and advice. He is a founder of Sterne, Kessler, Goldstein & Fox P.L.L.C., a leading intellectual property law firm. He is extensively involved in contested proceedings at the USPTO, regularly moderates webinars for West LegalEdcenter, and frequently writes and speaks on the patent landscape.